Seminar: Completing the Virtuous Cycle between Payment and Social Engagement in Freemium Social Communities
Completing the Virtuous Cycle between Payment and聽Social聽Engagement in Freemium聽Social聽Communities
Dr. Ravi Bapna
University of Minnesota
Date: November 8, 2013
Time: 1:30 pm - 3:00 pm
Location: Room 245, Bronfman Building
Abstract:
The Freemium business model, where a software product, an app or a service is simultaneously provided free of charge as well as sold for a premium, is a dominant business model in today鈥檚聽social聽media landscape. From聽social聽communities such as LinkedIn to music listening services such as Spotify, Pandora and Last.fm, to gaming apps such as Angry Birds, to online dating sites such as Match.com, Freemium models owe their popularity to the fact that they combine elements of platform competition, software versioning,聽social聽communities and free sampling under one umbrella. Yet, making sustainable profits from a baseline zero price and getting free consumers to convert to premium subscribers is a continuing challenge for all Freemium communities. In this study, we zoom in on the question of monetizing Freemium聽social聽communities. Prior research has causally established that聽social聽engagement (Oestreicher-Singer and Zalmanson 2013) and peer influence (Bapna and Umyarov 2013) are the two important drivers of getting users to convert to premium in such communities. We flip the perspective and ask whether paying premium causes users to become more聽socially聽engaged. If this is the case, then we can claim the presence of a virtuous cycle between聽social聽engagement and premium subscription, which taken together with the presence of peer-effects, can be a powerful force for the monetization of Freemium聽social聽communities. We causally establish that payment for premium leads to more聽social聽engagement using a look-ahead propensity score matching (LA-PSM) procedure, and that this effect varies across users who have different lengths of experience with the site. We show how the LA-PSM technique is superior to both traditional propensity score matching and instrument variable regression in the context of rare events involving economic decisions. In the context of the Last.fm music listening Freemium聽social聽community, we find that paying for premium leads to 47% more new friends as compared to free users. Likewise, the premium adoption causes a 87% higher increase in loving songs, 4.5 times higher number of playlists created, a 68% higher increase in receiving wall posts (shouts) from other users, and a 23% higher increase in listening to songs.
Keywords: Freemium,聽social聽engagement, monetization, premium subscription
(joint聽research聽with聽Jui Ramaprasad and聽Akhmed Umyarov)
